Analysts say in the story that Chiquita and Fyffes want to consolidate their marketing position against powerful retailers, and Fairtrade proponents worry about a “race to the bottom” that threatens all banana producers.

The merger, says the WSJ report, would give the combined companies 29% of the global banana market, compared with 26% for Dole and 15% for Fresh Del Monte. The article also mentions advances in refrigerated container technology that is boosting banana trade by doubling shelf life from 20 days to 40 days.

Combined Company to be Listed on the New York Stock Exchange and Domiciled in Ireland

Chiquita and Fyffes Brands to Continue

Ed Lonergan will serve as Chairman and David McCann will become CEO of the Combined Company

Combined equity value of approximately $1.07 billion

Then, more on the background and “reasons for” the merger. Funny, none of the bullet points include reference to a better bargaining position with retailers....

Chiquita Background to and Reasons for the Merger

The Combination will create a leading global produce company with approximately $4.65 billion in combined annual revenues and a presence in key markets around the world. The Combination is consistent with Chiquita’s strategic goal of focusing on core products and delivering greater operating efficiency. The combined company will more efficiently serve customers and better meet their demands. It will also, in the Chiquita Board’s judgment, have a stronger foundation and be better able to deliver enhanced shareholder value, by:

Having an enhanced scale, scope and portfolio diversity;

Delivering a wider scope of produce more efficiently to key markets around the world;

Combining the best of both companies, including their respective management talent; and

Benefitting from operational efficiencies and cost savings, generating at least $40 million in annualized recurring before tax overhead and operational synergies by the end of 2016.6 In addition to reducing administrative costs and other overhead expenses, these recurring annual synergies are anticipated to comprise of efficiencies in the areas of fruit utilization, shipping, port operations, packaging and procurement.

In addition to the benefits for customers, the Combination is expected to be accretive to shareholders of both companies on a net income basis no later than the first full calendar year after consummation, having regard to the anticipated synergies (please see paragraph 9 (Merger Benefit Statement) of this announcement).

Then, from Fyfees:

Fyffes Background to and Reasons for Recommending the Scheme Transaction

The Fyffes Board believes the Combination, if successfully completed, will create a major global banana and other fresh produce company. It is the opinion of the Fyffes Board that Fyffes and Chiquita are a natural fit, given their complementary activities, respective geographic reach and their industry understanding. The combined Fyffes and Chiquita knowledge of farming, procurement, shipping, ripening and distribution ensures that ChiquitaFyffes will be well placed to build an organisation that can operate smoothly and efficiently, encourage growth in its industry, create synergies, satisfy customers’ expectations and generate returns for shareholders. Additionally, the combined company will retain its leading position in the U.S. retail and packaged salads market.

Fyffes Shareholders will receive approximately 49.3% of the combined entity, on a fully diluted basis, and this is equivalent to a 38% premium based on Chiquita and Fyffes closing share prices on 7 March 2014 and a Euro/U.S. dollar exchange rate of 1.39;

On the basis of current banana volumes the combined entity will be the largest banana company globally with annual sales of over 160 million cases;

The combined entity will benefit from greater geographical diversification in its banana business;

Fyffes Shareholders will have the opportunity to benefit from operational synergies of at least $40 million by the end of 2016; and

ChiquitaFyffes will have annualized revenues of approximately $4.6 billions.

The Fyffes Board believes that Fyffes has consistently delivered outstanding results and that the proposed combination with Chiquita has the potential to provide increased value, growth and diversification opportunities for ChiquitaFyffes shareholders.

No, Fresh Express will be a very important component to the overall success of the combined company. In the past year we have made significant investments in our manufacturing capabilities, talent, innovation pipeline, Ag Ops, and quality and food safety systems. We are on a glide path to driving our target EBIT margins of 7-8% and this is a key element to our turnaround strategy. We see this business as a critical growth engine for the combined company going forward for the top-line and bottom-line. We are naming Brian Kocher, one of our best experienced executives to lead the business going forward as Chief Operating Officer – Salads & Healthy Snacks.

Does this change our commitment to the salad business?

No, Fresh Express will be a very important component to the overall success of the combined company. In the past year we have made significant investments in our manufacturing capabilities, talent, innovation pipeline, Ag Ops, and quality and food safety systems. We are on a glide path to driving our target EBIT margins of 7-8% and this is a key element to our turnaround strategy. We see this business as a critical growth engine for the combined company going forward for the top-line and bottom-line. We are naming Brian Kocher, one of our best experienced executives to lead the business going forward as Chief Operating Officer – Salads & Healthy Snacks.

Both Chiquita and Fyffes have built great reputations through an unwavering commitment to exceed our customers’ expectations and together we will be able to provide customers with a more diverse product mix and choice. Our supplier operations will benefit from the broadest geographic diversity in the industry, enabling us to better meet your needs for variety, and better insulate the company from weather or other disruptions in any given area. Importantly, we will maintain our brands, all of which are valued by both customers and consumers.

TK: So the brands will continue, apparently. I don’t sense that Chiquita and Fyffes execs are worried about the deal being snagged by regulatory authorities. But the growing Fairtrade movement to increase banana prices won’t like this merger. In the UK, there is an initiative to make banana pricing “fair.” From the bananalink Fairtrade website:

Shockingly, the UK supermarket sector has almost halved the shelf price of loose bananas in the last 10 years even though the cost of producing bananas has doubled. We now pay on average 11p for a loose banana compared to 20p for a loose UK grown apple.’

Bananas are now bought and sold so cheaply in the UK that many of the farmers and workers who grow them are being trapped in poverty. Many banana farmers and workers still can’t afford to put enough food on the table for their families, or provide the basics such as education or healthcare.

While Fairtrade provides a vital safety net for some banana farmers and workers, too many still suffer. This cannot continue. If all supermarkets are unable to make pricing work for both consumers and farmers, we believe it is time for the government to step in to end these unfair practices.

TK: On the other hand, if the world’s soon to be biggest banana marketer must raise banana prices to satisfy its critics, the sacrifice might be easier to make with its combined clout.

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About the Author:

Tom Karst

Tom Karst is national editor for The Packer and Farm Journal Media, covering issues of importance to the produce industry including immigration, farm policy and food safety.
He began his career with The Packer in 1984 as one of the founding editors of ProNet, a pioneering electronic news service for the produce industry. Tom has also served as markets editor for The Packer and editor of Global Produce magazine, among other positions.
Tom is also the main author of Fresh Talk, www.tinyurl.com/freshtalkblog, an industry blog that has been active since November 2006.
Previous to coming to The Packer, Tom worked from 1982 to 1984 at Harris Electronic News, a farm videotext service based in Hutchinson, Kansas.
Tom has a bachelor’s degree in agricultural journalism from Kansas State University, Manhattan.
He can be reached at tkarst@farmjournal.com and 913-438-0769. Find Tom's Twitter account at www.twitter.com/tckarst.